Published February 12 2012
Insurance agents under greater scrutiny
An industry group leader said while he supports better enforcement to deter agents from unethical behavior and to catch consumer fraud, the publicity it generates can tarnish the reputation of an industry struggling to improve its image.
“It does give the industry a black eye,” said Steve Becher, executive director of the Professional Insurance Agents of North Dakota. “Every industry has their bad apples, and we wish we didn’t have them, but we do.”
The Insurance Department averaged 18 enforcement actions per year from 2002 to 2008.
The number of actions skyrocketed to 92 in 2009 and 70 in 2010, department figures show.
Statistics for 2011 were still incomplete, but figures available for two categories show license revocations were the most since at least 2002 and cease-and-desist orders were the most since 2003.
Insurance Commissioner Adam Hamm, who was appointed to the job in October 2007 and elected to a four-year term in November 2008, said the economy is partly to blame.
“There is no question that over the past few years, with the downturn in the economy, we have seen in the Insurance Department some more agents that are taking risks and breaking the law,” he said. “And whenever that happens, there’s going to be consequences.”
Taking a harder look
Hamm stressed that the overwhelming majority of insurance agents “are good, law-abiding people.”
In 2010, the state had nearly 49,000 licensed agents and 70 enforcement actions.
“When we find the bad apples, we’ve got to make sure we weed them out as soon as possible,” he said.
Hamm said his background as a Cass County state’s attorney who prosecuted personal crimes has molded his philosophy as insurance commissioner.
In December 2009, he added full-time investigator Dale Pittman to his staff. Pittman, a former university police chief, spends about 50 to 60 percent of his time investigating agent misconduct and the remainder on consumer fraud cases, Hamm said.
One publicized case arising from Pittman’s work involved two Fargo brothers, Sead Mustafic and Senad Mustafic, who were connected to nearly 40 alleged cases of staged car crashes designed to collect insurance payments.
The investigation began when Pittman followed up on a suspected fraud report by an insurance company. A judge sentenced the Mustafic brothers to 30 days in jail on a racketeering conviction.
But Hamm said the department’s investigations don’t focus solely on major misconduct cases, such as that of Fargo insurance agent Jeffrey Neppl, who pleaded guilty last month to bilking three clients out of $209,372 by cashing out their annuities or directly depositing their checks and investing the money in his struggling businesses.
The department also now scrutinizes agents more closely when they apply for licenses, making sure they disclose any criminal history or outstanding money judgments against them, Hamm said. Failure to do so can lead to fines or probation, both categories that saw significant jumps in 2009 and 2010.
“We’re taking a much harder look at folks over the last couple years,” he said.
Actions listed in the “other” category also have increased substantially, from five in 2008 to 40 in 2009 and 18 in 2010.
Those actions consist mostly of license denials, reprimands and consent orders, which is one of the options agents have when they receive a cease-and-desist order. Under a consent order, the agent waives his or her right to a hearing and agrees on a course of action with the department, spokeswoman Andrea Fonkert said.
Becher, director of the Bismarck-based insurance agents group, which counts about 1,500 independent agents as members, said many of those getting caught taking risks were struggling before the economic recession hit.
As clients began to scale back insurance coverage and opt for higher deductibles, premiums fell and cut into agents’ revenue, Becher said. Some companies also slashed agent commissions, he said, noting crop insurance agents were hit especially hard, with commissions cut by 40 to 50 percent in the last two years.
“If you have an agent that’s barely paying his mortgage and paying for his kids right now, and then things go down and he doesn’t replace that with new business, there is the temptation for some to do things that they shouldn’t be doing,” said Becher, who was an insurance agent in West Fargo for about 20 years prior to his current job.
Still, Becher believes there is less agent misconduct now than 15 or 20 years ago because of the increased scrutiny and availability of information that makes it easier to detect wrongdoing.
“I think they’re finding things because they’re looking harder,” he said of the Insurance Department.
And the department isn’t keeping it a secret. On its website, news releases about enforcement actions and crimes committed by agents numbered nine or 10 in each of the past three years, compared with one in 2008, none in 2007 and five in 2006.
Becher, who provides agents with ethics training the department began mandating several years ago as a licensing requirement, said the publicity probably doesn’t help the industry’s reputation.
“But on the other side, it really makes the ones that aren’t doing things correct have to step back and go, ‘Hey wait a minute, I better not be doing this because this might be me in the paper in the future,’ ” he said.
Readers can reach Forum reporter Mike Nowatzki at (701) 241-5528